{"id":53832,"date":"2014-03-03T15:58:40","date_gmt":"2014-03-03T13:58:40","guid":{"rendered":"http:\/\/businesstech.co.za\/news\/?p=53832"},"modified":"2014-03-03T15:58:40","modified_gmt":"2014-03-03T13:58:40","slug":"buffett-has-a-message-for-non-professionals","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/trending\/53832\/buffett-has-a-message-for-non-professionals\/","title":{"rendered":"Buffett has a message for non-professionals"},"content":{"rendered":"

The worlds most recognised investor, business magnate, and philanthropist,\u00a0Warren Buffett<\/a>\u00a0says that the\u00a0typical investor does not need to study the particular\u00a0business prospects of specific firms to make money.<\/p>\n

Buffett, published his annual letter<\/a> to the shareholders of his Berkshire Hathaway Inc on the weekend, which included\u00a0nuggets\u00a0for the\u00a0amateur\u00a0investor.<\/p>\n

“Most investors, of course, have not made the study of business prospects a priority in their lives. If wise,\u00a0they will conclude that they do not know enough about specific businesses to predict their future earning power,”\u00a0Buffett wrote.<\/p>\n

“I have good news for these non-professionals: The typical investor doesn\u2019t need this skill.”<\/p>\n

Buffett said that in\u00a0aggregate,\u00a0American business has performed well over time and will continue to do so.<\/p>\n

He noted that in the 20th\u00a0Century, the Dow Jones Industrials index advanced from 66 to 11,497,\u00a0paying a rising stream of dividends to boot. “The 21st\u00a0Century will witness further gains, almost certain to be\u00a0substantial,” he said.<\/p>\n

“The goal of the non-professional should not be to pick winners \u2013 neither he nor his \u201chelpers\u201d can do\u00a0that \u2013 but should rather be to own a cross-section of businesses that in aggregate are bound to do well,” the investment guru said.<\/p>\n

“A low-cost\u00a0S&P 500 index fund will achieve this goal,” he said.<\/p>\n

The \u201cwhen\u201d is also important, Buffett stressed.\u00a0“The main danger is\u00a0that the timid or beginning investor will enter the market at a time of extreme exuberance and then become\u00a0disillusioned when paper losses occur.”<\/p>\n

Buffett referred to\u00a0the late Barton Biggs\u2019 observation: \u201cA bull market is like sex. It
\nfeels best just before it ends.\u201d<\/p>\n

“The antidote to that kind of mistiming is for an investor to accumulate shares over a
\nlong period and never to sell when the news is bad and stocks are well off their highs,”\u00a0Buffett said.<\/p>\n

Following those rules, the\u00a0\u201cknow-nothing\u201d investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory\u00a0results, Buffett said. “Indeed, the unsophisticated investor who is realistic about his shortcomings is likely to obtain better longterm results than the knowledgeable professional who is blind to even a single weakness.”<\/p>\n

He noted that if \u201cinvestors\u201d frenetically bought and sold farmland to each other, neither the yields nor prices of their\u00a0crops would be increased. The only consequence of such behavior would be decreases in the overall earnings\u00a0realized by the farm-owning population because of the substantial costs it would incur as it sought advice and\u00a0switched properties.<\/p>\n

“Nevertheless, both individuals and institutions will constantly be urged to be active by those who profit\u00a0from giving advice or effecting transactions. The resulting frictional costs can be huge and, for investors in\u00a0aggregate, devoid of benefit. So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a\u00a0farm.”<\/p>\n

According to Buffett, his\u00a0money is where his mouth is: “What I advise here is essentially identical to certain\u00a0instructions\u00a0I’ve\u00a0laid out in my will”.<\/p>\n

He said that one bequest provides that cash will be delivered to a trustee for his wife\u2019s\u00a0benefit.<\/p>\n

“My advice to the trustee\u00a0could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P\u00a0500 index fund.<\/p>\n

“I believe the trust\u2019s long-term results from this policy will be superior to\u00a0those attained by most investors \u2013 whether pension funds, institutions or individuals \u2013 who employ high-fee\u00a0managers,”\u00a0Buffett said.<\/p>\n

More on\u00a0Warren Buffett<\/h3>\n

Buffett talks social media and Bitcoin<\/strong><\/a><\/p>\n

11 Warren Buffett quotes on investing<\/strong><\/a><\/p>\n

Berkshire Hathaway sees profits soar<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Warren Buffett says that the typical investor does not need to study the particular business prospects of specific firms to make money.<\/p>\n","protected":false},"author":10,"featured_media":37221,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[5767,26,4900],"class_list":["post-53832","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-trending","tag-berkshire-hathaway","tag-headline","tag-warren-buffett"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/53832","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=53832"}],"version-history":[{"count":4,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/53832\/revisions"}],"predecessor-version":[{"id":53839,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/53832\/revisions\/53839"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/37221"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=53832"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=53832"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=53832"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}